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Nations favour tax-based stimulus: E&Y
May, 12th 2009

As India joined a host of other nations in announcing various stimulus packages to tide over the economic crisis, Ernst & Young found that tax-based stimulus packages were the favourites of many countries.

According to a study by the global tax, transaction and advisory services firm, accelerated depreciation programme and and indirect tax changes were the two tax-based measures adopted by India.

While the former seeks to improve cash flow for businesses by allowing them to write off the costs of investments more rapidly, indirect tax changes seek to maintain demand by reducing the costs of goods and services.

"In the fiscal stimulus packages announced in phases from December 2008 to March 2009, by the Indian government, India seems to have concentrated on indirect tax cuts, accompanied by increased government spending and some measure of accelerated depreciation provision policies" says Satya Poddar, Partner, Tax policy services, Ernst & Young, India.

While spending measures have received more mainstream attention over the last few months, tax measures actually represent 56% of the net effect of fiscal stimulus, according to a recent OECD report.

Other methods included carryforward and carryback provisions, reduction in corporate income tax rates, enhancements to the research and development tax credit and personal income tax measures.

Carryforward and carryback provisions are meant to provide cash flow assistance by giving traditionally profitable companies more latitude in using net operating loss credits they are accumulating in the current environment.

The Ernst & Young study covered 24 nations.

 

 
 
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